My Roth 401k Bought A Land Contract

Your Tax Attorney’s Most Recent Deal in His 401k: Bought a Land Contract

My Roth 401k bought a land contract in late August of 2017. I found the deal because I speak nationwide on taxation of real estate and self-directed IRA’s/401k’s. During one of the breaks, a member of the audience asked me if I could find a process server in Newark, Ohio, which is near my home in Columbus. While I could not recommend a process server, I was curious as to what they intended to do with the land contract. They wanted to sell it. They bought it for $6,500 and agreed to sell it for $13,500. Since the underlying house (3 or 4 BR, depending on the use of one of the downstairs rooms) is worth around $55,000, this is a great deal for me and I was happy to see the sellers make a quick buck. Capitalism baby!

We used a local lawyer to file for forfeiture of the land contract and eviction of the debtor. Once in court, the debtors, who had fallen on hard times and seemed like decent people, asked if we would rent to them month-to-month for 4 – 6 months while they qualified for public housing. They are able to pay $600 per month, which is $150 below FMV rents. We agreed. Why not? It makes the judge happy, gives the debtors a chance to get our lawsuit cleared from their records, gives them time to move in a convenient and dignified fashion, and means we are much more likely to get back a “non-trashed” house. We even agreed to provide them $500 cash for keys if they kept the place in shape and left it “broom clean” when they moved out. They signed a release of the land contract, so our title to the home is free & clear.

With the exception of the basement, the house is in pretty good shape. Though I have to mention that it wasn’t the house the hedge fund or we thought it was! It was the house next door to the one that was in the picture – they even gave us the wrong address. Typical. Do your homework!

We will spend about $10k on rehab, most of it in the basement which needs shored up and dried. Between the purchase price, the rehab, and lawyer/title fees, we should have just shy of $25,000 in it.

We have three options with that property at present:

a) I know an investor with rentals in the neighborhood. We discussed his paying me $30k for it. I’d take that deal pre-rehab. He wants me to rehab it and sell at that price. I think I will “pass”. Too much juice to give it up that cheaply.

b) I could rehab it and rent it out. It’d probably rent for $750. But I do not have properties or a property manager in that area. I’m not very interested in dealing with a new set of contractors, property managers, attorneys, laws and so on for just one property.

c) There is a huge demand for paper secured by a first mortgage on real estate – lots of people are chasing return in a “zero interest rate” environment. If we sell on another land contract, at $55,000 with 10% down and some decent screening, the paper should sell at face value (assuming an 8% – 9% interest rate) after seasoning for a year with complete & on-time payments. Selling the note after a year for $50,000 to $55,000 and reinvesting that money in a rental property in a region where I already have other rentals is very appealing to me. I think that’ll be the plan.

I was in Houston this weekend speaking for Quincy Long & QuestIRA. Always fun, and I always learn something from Quincy – he is ridiculously intelligent and also very business-savvy. One of the speakers at Quincy’s event was note guru & expert Scott Carson. He has an interesting approach with these notes – he really likes to buy from the same hedge fund that had owned my property. He does due diligence designed to isolate people who are in light default and who can & want to stay in the property. As such, most of the defaulted notes he buys get very quickly reinstated. Scott is interested in making large-volume offers to the hedge fund sellers – he gets lower prices that way. So we shall be joining forces to bid on larger packages. I’m looking for these types of properties in Ohio and perhaps Indiana – and all within my Roth 401k. I will let you know how it goes.

How many of you have an attorney who has been to Tax Court on SDIRA’s – and beat the IRS twice? How many of you have a tax lawyer who actually does deals in his SDIRA (well, 401k)? I advise on (and when necessary fight the IRS) taxation of real estate, SDIRA’s and small businesses nationwide. We also assist with asset protection for the same types of clients. Just saying…..

2-DAY SDIRA WORKSHOPS in COLUMBUS & VEGAS

To learn A LOT more on “how-to” use your Self-Directed IRA’s, HSA’s, CESA’s, and 401k’s, including lots of Q&A off the clock, consider attending one of my intensive SDIRA Workshops. We are presently holding two: One in Columbus, OH October 14th & 15th (with a bonus day for half of Monday 16th) and one in Las Vegas on November 11th & 12th. Please see iralawyer.com for more details. The Columbus one should be quite small, with fewer than 20 attendees expected. That’s what happens when your tax attorney is too busy practicing law to properly market ahead of time! Sub-optimal for me and good for those who show up. Click Here to for more information.

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